The firm Bhasin & Co., Advocates recently successfully represented and secured a significant victory in the case of “Bharat Heavy Electricals Ltd. (‘BHEL’) Vs. M/s PT Merak Energi, Indonesia & State Bank of India (‘SBI’)” for its client BHEL which is India’s largest power generation equipment manufacturer.

In the case, BHEL filed a suit seeking restraint of invocation of bank guarantee issued by SBI in favour of Indonesian Company. The Indonesian Company while objecting to the territorial jurisdiction of the Court contended that as the bank guarantee issued was irrevocable and independent, Bank under no circumstances can refuse the payment of bank guarantee as the Bank is bound to make payment irrespective of any pending contractual disputes and encashment can only be restrained in case of fraud of serious nature or special equities.

The particular aspect to this case which is special is that though words such as “unconditional or without protest or cavil” are used and heavily relied upon, and such protest coming not from the Bank issuing the Bank Guarantee but from the plaintiff at whose behest the Bank guarantee was issued, the Court looked into the whole content of the Bank Guarantee and the conditions specified therein upon which the “unconditional or without protest or cavil” rested,meaning thereby that the Bank Guarantee became unconditional only if the conditions set in the contract of Bank Guarantee are met. Mere usage of word “unconditional” would not render it unconditional if there are conditions set therein which need to be complied with before its invocation.

The Court further held that an agreement for situs of court of appropriate jurisdiction is completely different from the choice of application of laws of particular country and thus no law in India explicitly restricts the parties to a contract to opt for a foreign law to govern their contract. Further despite the fact that in parallel proceeding, Indonesian Court had ruled in favour of Indonesian Company, Indian Court held that it was not bound by findings by Indonesian Court. In conclusion, the letter of invocation issued by the Indonesian Company was declared illegal and void by Court and Indonesian Company was restrained from recovering the whole or any part of amount with respect to Bank Guarantee.w